Saturday, 5 February 2011

Since the last posting I have gained investment and continued with my project, while working seven days a week and have experienced a close family bereavement and I rarely have time to write.

Usually I am floating about in a sea of ambiguity - always seeing both sides to a story - so I do love it when something definite comes up.

Listening to BBC Radio Jersey yesterday, I heard Matthew Price say something that I thought was not right, and this prompted me to do a little research and write again.

Matthew was talking about the year 1965 in Jersey - what sort of music was played, what was going on, for example Fort Regent was being discussed, and house prices.

My feeling is that house prices are way too high in Jersey leading to many social problems. Matthew gave examples of houses for sale in 1965, including a two bedroom modernised cottage in First Tower with an asking price of £3,500. Matthew then joked that it seemed very cheap but that incomes were probably "pro rata". I thought back to my own childhood (which was a bit later than 1965) and remembered that people in those days did have ambitions to own a house which usually seemed to be fulfilled, so I decided to find out if incomes were "pro rata"

In 1965, the average wage in the UK was £1,250. I cannot find the statistics for Jersey but expect it was similar. That means the house at First Tower's asking price was 2.8 times the average income.

Presently there are many two bedroom houses for sale, with asking prices mostly around £400,000. The average median household income in Jersey (for a couple with at least one child) is £37,180. That is a multiple of 10.75.

The Median Multiple

The median multiple is used as a measure of housing affordability. Generally, housing is thought to be affordable if the multiple is 3 or less and severely unaffordable is the multiple is above 5.1. For example, the multiple is 7 in New York and 8 in San Francisco - the highest multiples in the United States. (Annual Demographia International Housing Affordability Survey) The most recent and accurate figures I could find for the UK (with just a few minutes to search) show a multiple of 2.3 for the North-East and 4.8 for London ( the lowest and highest for the UK) Other sources show the multiple for England overall as being 5.1.

This is a rough guide - household income used in this equation should be the figure after tax. There are other factors involved in the affordability of housing, for example, high interest rates in the late 1980s made many mortgage repayments out of people's reach.

However, the fact remains that since the 1960s, Jersey's housing has become severely unaffordable, and quite possibly the most unaffordable in the world

6 comments:

The other indicator of house prises rising faster than wages is the bank multiplier (see below)

In Jersey, of course, with many more banks involved in the finance industry, low mortgage rates to employees will also have helped drive up prices faster than the UK, where the proportion of businesses in a city involved in finance would be less.

http://www.find-home-loan.com/afford_a_home_loan_mortgage.htm

Historically the multiplier was always the way that banks determined if we earned enough to be able to afford to repay the home loan we had just applied for. Basically this system would work so that you were allowed to borrow as much as two and a half to three times what you annual salary was.

and now....

http://www.mwgb.co.uk/mortgages/borrowingcapacity.html

Most mortgage providers will be pleased to discuss how much you can borrow on a mortgage. The mortgage amount can vary considerably between providers and is usually calculated by using 'income multipliers'. Phrases such as '4 + 1' and '3.75 x joint' are commonly used. These are examples of income multipliers and simply mean that the provider is prepared to lend, say, four times the higher income plus the amount of the lower income (assuming, of course, that a couple is buying).

All too true. once again, it is down to our beloved finance industry. They went through a long spell of offering mortgages at huge multiples as a staff perk. Because finance employees could therefore make inflated offers to secure their purchases, anyone else also had to struggle to match them, and so the prices rose.Now, the mortgage supply has tightened up, and anyone who bought in the last 15 years can't afford to sell at a heavy loss, so the housing market has stagnated. There is a great danger that there will be a complete crash in house prices soon. While this may seem like good news for the thousands wishing they could buy, every cut-price house spells ruin for the seller, so there will be no more net happiness at the end of the day. While the banks will of course collect their money and repatriate it out of our economy.

Sorry to hear of your bereavement. Glad to see you back blogging. There is surely no doubt that the affordabiity of housing in Jersey has decreased in recent decades.

I would be interest to know if rents are similarly affected as house purchase prices compared to incomes.

I have a inchoate notion that in general house prices and food prices are inversely correlated. It used to be people (in the UK at last) spent 40% or so of their income on food, now it is only 10%. I suspect in general the proportions spent on housing have gone the other way.

Just a few months ago we were offered a mortgage of 5 times joint income. I think that what stops many from having the option to buy is the deposit. Now that property prices are so high, the deposit required is a substantial sum. It's not possible to save that sort of money when you're paying a massive rent and loads of tax.

I have experienced negative equity - when living abroad, where property is seen more as a home and less as an investment.

Rents, I think are also unrealistically high. I haven't researched this but it's easy enough to see that a very ordinary house will be let for about £18,000 per year, which means that the average family will be paying over 40% of their income on rent. Also, a household earning average income will receive either no help or very little from income support and will be paying tax.

I can see there would be an inverse correlation between house prices and food prices as we move further into a post-industrial society (but it seems that food is going to become more expensive)

Clearly there are serious social problems associated with unaffordable housing. Obviously homelessness, particularly among people in Jersey under 25 years of age because they are not entitled to any housing supplement from income support. Also, overcrowding and increased debt due to people having to over-commit themselves. Personally, I think unaffordable housing also causes disengagement of the local population, whether qualified or unqualified, apathy and a feeling of resentment.

Not an easy subject to tackle - because clearly nobody wants to cause negative equity. However, the present situation is also very damaging. Some policies are hard to understand, for example, I can't see how allowing non residents to buy to let can have any positive outcome for the local population. Also our shared equity scheme, Homebuy,is inadequate. It is only available to people with slightly above average income who can put down a deposit of about £100,000.

States Members are very poor on this issue because it is something that affects everybody and it is way out of control.

Unfortunately there is still a belief in Jersey that suppressing demand for housing accommodation by use of discriminatory laws and policies is useful.In fact is that the Housing Law and related measures form an artificial queue of people who will never be able to afford to house themselves. This queue is then used to justify 10,000 working adults being denied housing qualies and to be forced to live in lodgings of one sort or other.The financial result is that the house building fund for all residents of Jersey is starved of money that should go to building new and proper accommodation for all and the "rents" of the 10,000 go into landlords or existing proprty owners pockets.

The whole silly mess is then wrapped up with a load of nationalist pseudo - green rubbish about preseving the countryside.

Whether it's the multiplier or whatever in the accountants book matters very little - the basis of the whole thing is greed, prejudice and institutional discrimination - or capitalism by any other name.